KIMS Hospitals IPO a good long-term bet

ET Intelligence Group: Hyderabad-based Krishna Institute of Medical Sciences (KIMS Hospitals) is the largest corporate healthcare group in Andhra Pradesh and Telangana with nine multi-speciality hospitals having 3,064 beds. The company’s ₹2,144-crore initial public offering (IPO) this week will provide a partial exit to private equity investor General Atlantic Singapore, reducing its share from 40.9% to 20% post issue. As much as 75% of the proceeds from the issue will be used for debt repayment.Business and FinancialsKIMS Hospitals is one of the well-run low cost, high volume hospital chains with lower operating and capital costs. Due to lower charges, its hospitals’ average revenue per operating bed is 20-30% lower than other private hospital chains in South India. The company managed to keep the capital costs low by acquiring land in advance and constructing on its own to reduce costs and avoid high rent. KIMS is one of the few healthcare companies to post a profit for the pandemic-impacted FY21. The matured hospitals, constituting 80% of the business, have posted an increase in Ebitda margin to 31.6% in FY21.The company has plans to consolidate existing markets as well as expand its presence in adjacent markets. The strategy is to continue being a strong and large regional player and not to dilute focus by venturing into diagnostics or pharmacy businesses. As many as 80% of the doctors at KIMS Hospitals own equity in the company, leading to high retention levels. The company has acquired land in Chennai for setting up a facility over the next three years. It also has plans to set up a hospital in Bengaluru. The capex would be through internal accruals and debt, if required. Driven by the performance of flagship hospitals and turnaround of acquired assets for FY21, the company’s return on capital employed has increased to 27.5% — highest among its peers — from 14.2% in three years. 83554928Valuations & RisksStocks of most hospital companies are trading at a negative PE due to losses posted for FY21. While Apollo Hospitals has created wealth for its investors, there are others such as Healthcare Global, Aster DM Healthcare, Shalby, Indraprastha Medical Corp, and Narayana Hrudayalaya that have not been able to perform as well on the bourses. The IPO values KIMS Hospitals at a PE multiple of 26. The company has had governance issues in the past that the management is working on — related party transactions and one of the hospitals not having occupancy certificate and fire NoC from local authorities. Given the strong operational parameters, KIMS seems to be a good bet for long-term investors interested in the healthcare sector.

from Economic Times https://bit.ly/35oUMpB
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